2006-05-26 04:00:00 PDT Washington -- The Treasury Department, conceding that it has no right to continue collecting a 108-year-old tax on long-distance telephone calls, announced Thursday that it will drop its legal fight for the tax and instead refund as much as $13 billion to callers who have paid the tax in the past three years.

The 3 percent tax, enacted in 1898 to help pay for the Spanish-American War and revised in 1965, has been declared illegal by five federal courts of appeal during the past year as the result of challenges brought by companies forced to pay it.

Treasury Secretary John Snow Thursday called it "an outdated, antiquated tax that has survived a century beyond its original purpose and by now should have been ancient history."

The tax, originally considered a luxury tax because only wealthy people had telephones at the time, will go out of existence July 31.

"It's a great day for consumers," said Gene Kimmelman, director of the Washington office of Consumers Union. "The last residue of the Spanish-American War is finally complete."

The Treasury Department had no figures on how much of a refund an individual might expect, but Gene Kimmelman, director of the Washington office of Consumers Union, said, "People with the biggest phone bills will be the biggest winners." Those are principally businesses and high-income consumers who tend to use phones more, he said.

Kimmelman cautioned that many, perhaps most, households will see only a modest refund, possibly $10 or so. Over the past several years, traditional long-distance use has fallen as cell phones and the Internet have grown in use.